The order of the Bench was delivered by
Saktijit Dey, J. M.-These appeals by the department are directed against a common order dated 22/11/2012 passed by ld. CIT(A), Hyderabad pertaining to the AYs 2002-03 and 2003-04.
2. The solitary issue, which is common in both the appeals, is in respect of allowance of assessee’s claim of depreciation by ld. CIT(A) at 100% on wind electric generations as against @ 25% allowed by AO.
3. Briefly the facts relating to the issue in dispute are, assessee a company is engaged in the business of civil construction. A search and seizure operation u/s 132 of the Act was carried out in case of assessee on 24/03/2007. Pursuant to the search and seizure operation, notices were issued u/s 153A of the Act for the impugned assessment years and ultimately, assessments were completed u/s 143(3) read with section 153A of the Act. After completion of the assessment as aforesaid, ld. CIT (Central) in exercise of power u/s 263 of the Act called for the assessment records and after examining them was of the view that assessment orders passed by AO is erroneous and prejudicial to the interests of revenue as AO has allowed depreciation at 100% on wind mill generators which according to ld. CIT are electric equipments on which depreciation is allowable at 25%, accordingly, he set aside the assessment orders passed by AO and directed him to examine the issue. In pursuance to the direction of ld. CIT u/s 263, AO called upon assessee to furnish details and explain why excess depreciation claimed shall not be disallowed. Though assessee explained that wind mill generators which are renewable energy devices on which depreciation is allowable at 100%, but AO rejecting the claim of assessee concluded that wind electric generators being electrical equipments, depreciation, is allowable at 25% and accordingly passed the assessment order by disallowing excess depreciation claimed by assessee. Being aggrieved of the assessment order so passed assessee preferred appeal before ld. CIT(A).
4. In course of hearing of appeal before ld. CIT(A), assessee submitted that it is having one wind mill power project situated at Chitradurga in the state of Karnataka, which was conceived by M/s Encon Services Ltd., Chennai at a cost of Rs. 14,73,71,680. Subsequently, M/s Encon Services Ltd., amalgamated with assessee with effect from 01/04/2001 by virtue of an order passed by Hon’ble High Court of A.P. on 08/10/2002. It was submitted that as deprecation at 100% are on wind mill equipments, AO was not justified in treating them as electrical equipments and restricting the depreciation to 25%. In support of such contention, assessee relied upon certain judicial precedents. Ld. CIT(A) after considering the submissions of assessee and documentary evidences available on record including invoice copies, etc. allowed assessee’s claim of depreciation at 100% with the following findings:
“4.6 I have carefully gone through the assessment orders and written submissions filed before me. It is not a disputed fact that the appellant is having windmill power project and was commissioned on 30/03/2002. The only point of contention is rate of depreciation on wind electrical generators. In this regard, the Rajasthan High Court in the case of CIT Vs. Agarwal Transformers have construed the word wind electric generators based on the principal of ejusdem generis and held that wind electric generators are eligible for the higher rate of depreciation. Also, in the case of Hindustan Platinum (P) Ltd. Vs. ACIT, ITAT, Mumbai, depreciation has been allowed on wind electric generators at a higher rate.
4.7 I am of the view that the wind electric generators are the part of the wind power projects. The wind power projects cannot be operational without the wind electric generators. The higher rate of depreciation is given to encourage more wind power projects. Therefore, after considering the aforesaid facts of the case and case laws, I hold that the electric wind generators are eligible for higher rate of depreciation. Further, it is held that, the depreciation for the year 2003-04 should also be allowed at 100%. Accordingly, I direct the AO to allow the same. Thus, this ground of appeal is allowed.”
5. The learned DR submitted before us, before AO, assessee did not establish the fact that the equipments on which 100% depreciation was claimed are part of wind mill, hence, AO treated the wind mill electric generators as electrical equipments and allowed depreciation at the appropriate rate.
6. The learned AR, on the other hand, strongly supporting the order of ld. CIT(A) submitted that documentary evidences submitted before AO as well as ld. CIT(A) clearly establish the fact that the equipments on which depreciation was claimed @ 100% are part of wind mill, hence, AO was not justified in restricting the depreciation to 25%.
7. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. After going through the documentary evidences placed before us which also forms part of record before the departmental authorities, we do not find any infirmity in the findings of ld. CIT(A). It is clear from the assessment order, assessee’s claim of depreciation at 100% on wind mill equipment was rejected by AO simply for the reason that as wind electric generator is in the nature of electrical equipment, depreciation is to be allowed @ 25% and not at 100%. However, as found from the facts on record, assessee claimed 100% depreciation on assets worth Rs. 14,73,71,680 by treating it as wind mill equipment. The break up of Rs. 14,73,71,680 is as under:
| S. No. |
Description of assets Date of acquisition Amount (in Rs.) |
1. |
Incidental expenses 08.01.2002 1,680 |
2. |
Erection & Commissioning charges 20.03.2002 3,98,90,000 |
3. |
Purchase of wind electric generators 20.03.2002 10,61,10,000 |
4. |
Registration & front end fee to IREDA 31.03.2002 13,70,000 |
Total |
14,73,71,680 |
8. On perusal of the invoices raised towards sale of wind mill equipment and erection and commissioning of the same, it is to be noted that the price has been charged for supply, erection and commissioning of wind electrical generators. The seller of the wind mill equipment has also issued a certificate, a copy of which is at page 38 of the paper book, wherein it is clarified that the equipment supplied by them to assessee is not just wind electric generator but the complete wind mill unit consisting of the following components:
1. Gear Box & its related accessories, 2. Blades, 3. Tower, 4. Generator & its related accessories, 5. Power cables, 6. Communication Cables, 7. Main Bearing and Shaft, 8. Electronic Controllers, and 9. Power (Main) Panel.
9. It was further clarified by the sellers that all the aforesaid components are integral part of the wind mill unit and without them the unit cannot function. Further, assessee has also obtained an opinion from a technical expert i.e. M/s Servel Krishna Engineers Pvt. Ltd. , who in their opinion have stated that the main components of wind turbines are as under:
1. Blades, 2. Gear Box, 3. Generator, 4, Tower, 5. Foundation, 6. Step up transformer, 7. Metering arrangement, and 8. 11/33 kV overhead lines.
They have further opined that wind electric generator is an integral part of the wind mill and it is specifically designed, so that they can convert mechanical energy into electrical energy when installed in a wind mill. Without the generator unit, the wind mill cannot achieve the desired purpose. They further clarified, as the generator is the main component, the equipment supplied for wind mill installation is some times referred to as wind electric generator in industry terms. It was stated that the complete unit of the wind mill comprising of the aforesaid components is a monolithic unit called ‘wind mill or wind mill generator’. Apart from the aforesaid, technical opinion, a schematic diagram of the wind mill as provided by the seller of the wind mill equipment also clearly demonstrates that the generator is an integral part of the windmill unit. Therefore, considering the aforesaid factual aspect it has to be accepted that wind mill generator is nothing but wind mill equipment on which depreciation is allowable @ 100% as per the statutory provision. On a perusal of the assessment order, it is clear that AO without controverting the evidences and materials brought on record by assessee, has arbitrarily come to a conclusion that wind electric generators is an electric equipment eligible for depreciation @ 25%. Even at the time of hearing before us, ld. DR has not brought any contrary evidence to conclusively prove the fact that the equipment on which assessee claimed depreciation at 100% is not an integral part of the wind mill. In the aforesaid view of the matter, considering the fact that the materials brought on record clearly demonstrate that assessee has claimed depreciation at 100% on wind mill as a whole comprising of various ancillary and integral components including generator, we uphold the order of ld. CIT(A). Grounds raised by the department in both the appeals are dismissed.
10. In the result, appeals of department are dismissed.
The order pronounced in the open court on 05/12/2014.